How much down payment do I need to buy a home?

By
Real Estate Agent with RE/MAX Suburban

 

In 2020, the median down payment on a home was 12 percent for all buyers,median down payment for buyers in 2020 the National Association of Realtors® found. It was lowest for first-time homebuyers, at only 7 percent, and highest for repeat buyers at 16 percent.  (Dec 14, 2020)

 

There is so much misinformation that I always diligently keep fresh information out there for those searching to buy a home. There are many variables to getting a mortgage loan but the top concern would be the need to speak with a loan officer to get the most accurate info. Because everything is always correct on the internet, right? 

 

Maybe you already have a down payment amount in mind? Here’s a look at the minimum requirements of some common loan types.


Conventional loan: 3 percent – 5 percent
Conventional loans backed by semi-governmental lenders Fannie Mae and Freddie Mac can require just 3 percent down, but they may have some income restrictions and stringent credit requirements to qualify. Lenders often require 5 percent to 15 percent down for other types of conventional loans.

When you get a conventional loan with a down payment of less than 20 percent, you have to pay for private mortgage insurance (PMI). The monthly cost of PMI varies, depending on your credit score, the size of the down payment, and the loan amount. Note that some lenders might waive PMI, but they often charge a higher interest rate to account for the greater risk.


FHA loan: 3.5 percent
For an FHA loan insured by the Federal Housing Administration, the minimum down payment is 3.5 percent. That means you’ll receive the maximum financing FHA offers at 96.5 percent, but you need a FICO score of at least 580 to qualify.

FHA loans come with an upfront mortgage insurance premium (MIP) and annual MIP.

The upfront MIP is 1.75 percent of the base loan total and the annual MIP varies by the length of the loan and how much you put down. For 30-year fixed-rate loans with an LTV less than 95 percent, you’ll pay 0.80 percent, or 80 basis points. The same loans with an LTV higher than 95 percent have an MIP of 0.85 percent, or 85 basis points. Those numbers will be higher (100 and 105 basis points, respectively) for loans worth more than $625,500.

You can make a higher down payment than the minimum on an FHA loan. To encourage that, the FHA charges lower borrowing costs if your down payment is 5 percent or more. One difference between the FHA and private mortgage insurance is that the FHA doesn’t charge more to people with lower credit scores.

There’s a notable drawback to putting down less than 10 percent on an FHA loan. When you do this, you cannot cancel annual mortgage insurance premiums; you’ll pay those for the life of the loan or until you refinance or sell.
 


VA loan and USDA loan: Zero percent
The U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA) guarantee zero-down payment loans for qualified homebuyers.

VA loans are available to most members of the armed forces and veterans. USDA loans are available in designated rural areas. The USDA has maps on its website that show which areas are eligible.

With both loan types, you borrow from a regular lender, but the VA or the USDA guarantees the loan. There is no mortgage insurance, but you’ll likely have to pay a funding fee or guarantee fee.
 
 
 
 
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lyn sims remax suburban  Lyn Sims    Schaumburg IL Area    Northwest Chicago Suburbs  ●  (847)230-7324
 
 
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Comments (6)

Barbara Todaro
RE/MAX Executive Realty - Retired - Franklin, MA
Previously Affiliated with The Todaro Team

Hi Lyn Sims great information for buyers but also a fine review for many agents....newer agents should appreciate this post.... and I appreciated the update/review..... 

Feb 18, 2021 01:21 PM
Wanda Kubat-Nerdin - Wanda Can!
Red Rock Real Estate - St. George, UT
So Utah Residential, Referral & Relocation REALTOR

Good guideline for buyers to know when searching out potential homes to purchase. Thanks for sharing Lyn!

Feb 18, 2021 04:39 PM
Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Bristow, VA

Great way to get the minimum down payments out there for buyers who may not have any idea what their savings goals need to be.  In your market, I'm guessing they need to pay their own closing costs to be competitive now, too.  What do closing costs typically run as a percentage of the sales price in your market?

Feb 18, 2021 06:03 PM
Raymond Henson, SRES, GRI
eXp Realty of California, Inc. (lic. #01878277) - Elk Grove, CA
Realtor

Thank you for your informative post.  It will be very helpful for home buyers.

Feb 20, 2021 07:07 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Lyn, great post with valuable information for buyers wondering how to structure their offer/loan.

Feb 27, 2021 08:31 AM
Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

In CT, we have a CFHA program sponsored by the State of Connecticut, which offers down payment assistance requiring no money down and a secondary note for down payment assistance which includes closing costs, which translates to nothing down.

Feb 27, 2021 02:31 PM

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